Standing Committee E

[Mr. Joe Benton in the Chair]

Consumer Credit Bill

Sitting suspended for a Division in the House. 
On resuming—

Laurence Robertson: On a point of order, Mr. Benton. A few minutes ago, I tried to get into this Room to retrieve papers and to prepare for the debate. I was told that Members could not enter the Room until 2.30 p.m. I pointed out that the Committee started at 2.30 p.m., and that that would make me late, but I was still refused access. I bumped into you in the corridor and protested further. The person responsible for unlocking the Room made another telephone call and was eventually told that hon. Members could enter the Room once the Chairman had appeared. Could you, through your good offices and as a member of the Chairmen's Panel, look into this matter? It seems very hit and miss indeed? Perhaps the way forward might be to agree a time; say, a quarter of an hour before the Committee is due to sit. Some degree of certainty would be useful. It was the most ridiculous situation, and it should not occur again.

Joe Benton: Having experienced the same incident, I can say only that I agree entirely and I will ensure that some arrangement will be made.
Clause 55 ordered to stand part of the Bill.

Schedule 1 - Schedule A1 to the 1974 Act

Laurence Robertson: I beg to move amendment No. 48, in schedule 1, page 55, line 24, at end insert
'or for any other reasonable reason, providing that reason is stated.'. 
Welcome back to the Chair, Mr. Benton. The amendment relates to paragraph 4 of schedule 1, which deals with the terms of office of the members of the consumer credit appeals tribunal panel. Sub-paragraph 2 states: 
 ''The Lord Chancellor may remove a member of either panel from office on the ground of incapacity or misbehaviour.'' 
The meaning of ''misbehaviour'' is perhaps obvious. The meaning of ''incapacity'' might be open to some debate. Would it be helpful to the Lord Chancellor to have a slightly extended remit and to allow him to remove a member of the panel for 
''any other reasonable reason, provided that reason is stated.''?
That might enable the Lord Chancellor to ensure that the panel is flexible and able to understand all the issues likely to come before it.

Gerry Sutcliffe: I, too, welcome you to the Chair, Mr. Benton. I have not been out to lunch today so my memory will not be impaired. I fully remember the issues that we discussed this morning.
I would like to go through my case with regard to amendment No. 48, and then perhaps we can explore it further. The only grounds on which the Lord Chancellor may remove a member of the appeals tribunal from office are incapacity or misbehaviour. The schedule does not change the current position of members of the existing panels. There are strict requirements for the qualifications of panel members, which are set out in paragraph 3 of schedule 1. 
Once the Lord Chancellor has appointed the members, they are entitled to a full term of office unless they are incapacitated or misbehave. It is imperative that members of the tribunal are certain of their security of office. The schedule makes the reasons for removal very clear. It also makes it clear that tribunal members should hold and vacate office in accordance with the terms of their appointment, which will be determined by the Lord Chancellor. 
Further to that, the selection of particular members of the tribunal to hear each appeal shall be carried out in accordance with arrangements made by the tribunal president. That enables the president to take into account members' availability and particular areas of expertise. Of course, the Lord Chancellor does not have to reappoint any member once their term of office comes to an end. That is the case that we wish to pursue with regard to this amendment. However, I am interested to hear whether the hon. Gentleman wishes to discuss it further.

Laurence Robertson: The Minister has given a sympathetic response, but he appears to be fishing for more information from me. I do not think that I can explore the matter any further.

Gerry Sutcliffe: I am not wildly opposed to what the hon. Gentleman says. There are established criteria, but I will give a commitment to consider the issue of reasonable grounds. If we are able to amend those we will, and if we are unable to, I will ensure that the hon. Gentleman gets the reasons for that.

Ian Liddell-Grainger: Perhaps I can help the Minister a bit. The Committee on Standards in Public Life has a code of practice. Would the Minister consider incorporating part of that? It is not applicable to most of this, but there is a serious set of guidelines that could be used. Perhaps the Minister will consider that; it may be helpful.

Gerry Sutcliffe: I am happy to do that. I must be careful not to start off the afternoon by—[Interruption.] Does my hon. Friend wish me to give way?

Chris Bryant: No.

Gerry Sutcliffe: I thought that my hon. Friend was trying to be helpful again.
In the spirit of the amendment, we will examine that matter—I wish to reassure the Committee on that. However, if, in the spirit that I am trying to engender, I somehow drop myself in it, I am sure that the hon. Gentleman will accept it if we are unable to do as he wishes. We will consider the idea of ''any other reasonable reason'' as an additional test.

Laurence Robertson: I am happy to accept that. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Schedule 1 ordered to stand part of the Bill.

Clause 56 - Appeals to the Consumer Credit Appeals Tribunal

Question proposed, That the clause stand part of the Bill.

Laurence Robertson: Clause 56 concerns appeals to the consumer credit appeals tribunal. In a wider context, can all OFT determinations be appealed to the tribunal? Does leave have to be sought, or is there an automatic right of appeal? Perhaps the Minister could clarify those two points.

Gerry Sutcliffe: I shall try to do that. As the hon. Gentleman said, the clause relates to the new consumer credit appeals tribunal. That tribunal is being established to hear appeals against determinations of the OFT, and it replaces the current system of appeals to the Secretary of State. The clause amends section 41 of the Consumer Credit Act 1974, which contains the existing provisions for appeals against OFT determinations. The clause would repeal subsections (2) to (5) of section 41 and insert the new subsections proposed in subsection (2).
Appeals should be made by sending the tribunal notice of appeal in the form specified by the rules. Appeals are be carried out by way of a rehearing, which means that the merits of the case are considered by the tribunal on the day that the appeal is heard. The tribunal will then able to consider evidence that was not available to the OFT at the time that it made its determination. There is no requirement for leave to be granted to appeal determinations of the OFT to the new tribunal. I hope that that is helpful. 
Question put and agreed to. 
Clause 56 ordered to stand part of the Bill. 
Clauses 57 and 58 ordered to stand part of the Bill.

Clause 59 - Financial services ombudsman scheme to apply to consumer credit licensees

Question proposed, That the clause stand part of the Bill.

Sally Keeble: I am grateful for the chance to ask questions about this important clause, which sets out the proposals for the extension of the ombudsman scheme to cover consumer credit licensees. In a sense, the OFT deals with the trade end of the regulations, and this provision deals with the consumer end. I have always found the ombudsman's services—in all matters with which it deals—extremely helpful and important because it provides a chance for people to get justice and redress without going to court.
I would welcome clarification of some of the terms used in the clause. It seems that it would be only in the cases of regulated credit, loans and debt that people will have recourse to the ombudsman's service. Will the Minister clarify that, because the clause states the condition that respondents must have possessed a standard licence at the time that the complaint relates to. Subsection (3) also states that the provision applies to firms that provide consumer credit, to businesses as they relate to debt counselling, and to businesses as they relate to debt collecting. Does that refer only to the consumer credit companies and any advice they might provide on debt management, or does it refer to a different category of business altogether? 
Will my hon. Friend also explain how the scheme will operate and how much promotion there will be? I note that some statements on this matter refer to the provision of information, the relationship between the ombudsman and the Office of Fair Trading and the exchange of information between them. It is important that members of the public, who may be in debt and who may feel that this provision is a source of redress for them, understand how they can access it. It is important that they know that this big expansion of services has taken place. I suspect that the provisions will be extremely important for some of our constituents, particularly those who have had problems with credit, even in cases where that credit came from registered companies. I shall return to that matter later. 
Will my hon. Friend explain the relationship between this clause and unregulated debt? I am thinking about two types of debt. Normally, if constituents come to us with debt problems, they have not only one debt, but a whole host of them. Some concern credit cards and other such loans, and some concern the public sector. I ask the Minister to address public sector debt, especially its relationship to private sector debt. I shall give an example, and I hope that it will not delay the Committee too much. 
One of my constituents started with quite a small debt of £10 or £15 for a parking ticket and £53 for a second parking ticket, which he disputed. The constituent received income support. He did not pay the fines, and that was entirely his fault, but by the time Northampton council sent the bailiffs round, the debt had escalated to £600. Three days before Christmas, the bailiffs took his sofa, his dining table and chairs and his television set. Three days before Christmas, that is a disaster. He got a £600 loan to pay off the debt, which will take him a couple of years to repay. 
Finally, I am also concerned about the article that my right hon. Friend the Member for Leeds, West (Mr. Battle) mentioned this morning, which I too saw in the Financial Times, which addressed debt management and the fact that people who are most in need get credit from pawnbrokers and informal money lenders. Those are businesses in which we want to prevent sharp practice. We wish to see an improvement in the way in which credit is provided. Businesses must conform to the best practice in the industry because people need credit. What happens when people have problems with a loan shark? Presumably, if a business does not have a licence, the debtors will not have any redress through the ombudsman. We must make sure that those people can be brought into the equation. 
I welcome the extension of the financial services ombudsman's remit. I hope that we will receive enough information to ensure that when our constituents experience difficulties, they can benefit from the service.

Paul Farrelly: I apologise for missing the start of the debate.
I welcome the extension of the ombudsman's jurisdiction to hear complaints against the holders of consumer credit licences and many of their nefarious, oppressive and exploitative practices—I do not intend to mince my words, Mr. Benton. The ombudsman will not be a panacea, but it will provide an alternative forum for consumers and another fount of bad publicity for bad behaviour. Regulatory competition might spur people on to improve their act. I do not include the Minister in that statement; he has done a great job in piloting the Bill. In particular, however, I do include the Office of Fair Trading. Let me tell my hon. Friend why I say that, and why I called for better enforcement during our discussions on Tuesday. I shall also tell him why I support additional powers and the involvement of the financial services ombudsman. 
In various guises—as a business adviser, journalist and financial editor—I have had 20 years' experience of dealing with the OFT. Year after year, I have seen Sky television run rings around competition regulators. The only recent notable high-profile success by the OFT that I can remember was its busting up—wait for it—a price-fixing ring for replica football shirts. From the press, I now note that it is the Serious Fraud Office, not the OFT, that is pursuing alleged cartels of multinational drugs companies that are involved in the altogether more serious issue of fixing the prices of medicines. 
The OFT started to examine penalty charges in 2004, after publication of the Select Committee's first damning conclusions. The OFT has now written to eight major credit card providers as part of that ''investigation''. The director-general of Fair Trading, Sir John Vickers, wrote to the Committee in October. His letter stated: 
 ''We found that different card issuers use different accounting policies and bases for charging, some of which, in our preliminary analysis, are of questionable validity under the regulations on unfair terms in consumer contracts.'' 
In January 2005, in response to enquiries from The Guardian, the OFT said that it was still investigating the issue. Today, in response to enquiries from my office, the OFT said, again, that it was still investigating. It had contacted the eight companies, but it could not comment any further. It could not say how long the investigation would last, nor when a report might be drawn up or any announcement made. 
Like other hon. Members, I appreciate the need for time and confidentiality to undertake serious inquiries such as this one. However, these well-known practices have dragged on for years. Only yesterday, Seymour Fortescue, the chief executive of the Banking Code Standards Board, condemned the charges as being indefensible. Have we seen, however, any conclusions or action from the OFT? 
In 2004, one of the credit card companies, the US-based MBNA, told its shareholders that it might have to reduce late-payment charges in the UK, and that that might affect its profits. That was more to do with stringent reporting requirements in the USA, where they know a thing or two about cracking down on unfair trading practices, than the prospect of any imminent action by the OFT. 
I understand the need to take proper legal advice, particularly when confronted by batteries of highly paid City lawyers and barristers from the banks on the other side. However, there is plenty of good free legal advice, and that has been the case since the 1974 Act. With regard to that issue, I draw the attention of Committee members to an article in The Guardian in August 2004 by the eminent barrister Richard Colbey. 
We all remember, before 1997, how well the old Securities and Investment Board, as part of the City's self-regulation, kept the perpetrators of pensions mis-selling firmly under wraps, until this Government got in, and my right hon. Friend the Member for Airdrie and Shotts (Mrs. Helen Liddell) forced the board to do a U-turn on naming and shaming, and we all know what an effect that had. 
That is the sort of spine that I want the OFT to have. It is the sort of spine the financial services ombudsman will have in dealing with consumer credit issues, and I hope that some regulatory competition from the ombudsman will do the OFT and consumers the power of good.

Ian Liddell-Grainger: I wish to ask the Minister for clarification on three areas. First, who will be the gatekeeper to the ombudsman? Will it be Members of Parliament, or will people be able to approach the ombudsman directly? Part of the issue concerns compulsory jurisdiction. It would be helpful if we knew how people will be able to approach the ombudsman.
Secondly, may we have some clarification on subsection (5)? It says: 
''The approval of the Treasury is required for an order under subsection (2)(e).'' 
Subsection (2)(e) reads: 
''at the time of the act or omission that type of business was specified and an order made by the Secretary of State''. 
Is the Secretary of State then subservient to the Treasury, or will the Treasury be dictating rules on how an individual can bring a complaint to the ombudsman? I am not sure that I quite understand what either provision is intended to achieve. If the Treasury cannot deal with the matter, it seems to go back to the Secretary of State. If that is the case and there is a disagreement between both, the problem then arises that there is no one to make the decision. Would the Treasury and the Secretary of State then go to the ombudsman? I hope that the Minister agrees that that would be ridiculous. 
Thirdly, under subsection (2)(f), if the complaint cannot be dealt with under the compulsory jurisdiction, what mechanism will deal with it? Will the complaint be automatically returned to the ombudsman, or does that provision relate to the period before the ombudsman becomes involved? If so, would the individual take the complaint, or would that be done through the Minister's office or by some other mechanism of which I am not aware?

Gerry Sutcliffe: It is proper to spend a little time on this clause, because it introduces a new consumer redress system and is using the financial services ombudsman as the vehicle to do that. I will try to return to the specific issues raised by my hon. Friends the Members for Northampton, North (Ms Keeble), and for Newcastle-under-Lyme (Paul Farrelly) and the hon. Member for Bridgwater (Mr. Liddell-Grainger). Setting out the purpose and detail of the clause may help hon. Members in their appreciation of what we are trying to achieve.
The clause introduces a compulsory alternative dispute resolution scheme to hear complaints about consumer credit matters. Consultation showed that consumer and industry groups strongly supported the introduction of an ADR system for consumer credit. In most cases, consumers have no other option than to go to the courts to seek redress against unfairness. That often proves daunting and expensive for consumers and industry. Most credit provided by banks and building societies is already covered by ADR, and some trade associations run their own ADR schemes. However, access for consumers to ADR is not universal, and business can, in many cases, opt out. 
ADR will provide wider and easier access to an efficient and cheap process of dispute resolution for both consumers and industry. It means that most consumers no longer have to be worried about going to court to challenge unfairness and will allow agreements to be settled quickly and simply. Consumers will have a better chance of obtaining fair redress against unfair practices, and it will encourage fair standards throughout the industry. 
Ultimately, these changes will increase consumer confidence in the market, which in turn benefits the industry. As has been said, the ADR will be provided by the financial ombudsman service. The FOS was chosen as the ADR provider for consumer credit matters because it already deals with financial sector services generally. Under the Financial Services and Markets Act 2000, the FOS provides ADR for two existing jurisdictions: the voluntary jurisdiction and the compulsory jurisdiction; this clause adds a third—the consumer credit jurisdiction. 
Around 80 per cent. of people who responded to the consultation said that they would like the FOS to provide ADR under the Consumer Credit Act 1974. The FOS's experience and expertise, which has been recognised by members, will ensure a smooth transition to the newer ADR scheme more than any other provider. 
Clause 59 describes the conditions that must be satisfied for a complaint to be dealt with by the FOS. It also states how different activities will be made subject to the consumer credit jurisdiction. The Secretary of State for Trade and Industry will introduce types of credit businesses into the consumer credit jurisdiction by means of an order. It will be agreed with Her Majesty's Treasury Ministers and will set out one or more of the types of business in the new licence categories. These are: consumer credit  business; consumer hire business; credit brokerage; debt adjusting; debt counselling; debt collecting; debt administration; credit information.

Sally Keeble: I would be grateful for clarification on debt counselling and debt advice. Is the Minister talking about businesses that sell the services, such as independent financial advisors? Can he rule out bodies such as citizens advice bureaux and housing, money and advice centres, which may have a company structure, but which consider themselves part of the voluntary sector? If he does not know the answer, perhaps he could provide it in writing.

Gerry Sutcliffe: If my hon. Friend bears with me, the position may become clearer. To finish that list, I should add credit information services and credit reference agencies. Different types of businesses will be introduced on a staggered basis. The rate at which businesses are introduced into the consumer credit jurisdiction will be agreed with the Treasury after consultation with the FOS and the Financial Services Authority. That will ensure that the FOS can cope with the additional workload and will not be at risk of being overloaded, which was an issue raised on Second Reading.
When a type of business is introduced, the FOS will make rules setting out the activities that it will consider to be within the remit of that type of business. That will provide maximum symmetry between the existing compulsory jurisdiction covering banks and building societies and the new consumer credit jurisdiction covering consumer credit firms.

Sally Keeble: I am sorry to come back, but my hon. Friend may wish to write to me afterwards. I want to make absolutely sure that people who provide advice through organisations such as housing, money and advice services and citizens advice bureaux, which provide financial advice, will not be taken to the ombudsman.

Malcolm Bruce: They are not licensed.

Gerry Sutcliffe: That is the point. The hon. Gentleman said that they are not licensed; but they are licensed. Citizens advice bureaux have a group licence, and group licences will not be covered.

Sally Keeble: So, they will not be covered?

Gerry Sutcliffe: No, they will not. The new rules will ensure that a consumer's ability to obtain redress is balanced with the FOS's capacity to deal with the extra work. The FOS will also make procedural rules regarding the operation of a consumer credit jurisdiction. The FOS must hold a public consultation before making any rules, and the rules must be approved by the FSA.

Ian Liddell-Grainger: Is the Minister saying that if the rules are changed after the order is made so that the Treasury can decide that it wants other things to be  included, that will be done as part of an amendment, so that the rules can go into jurisdiction within the existing orders.

Gerry Sutcliffe: Yes. That will become clear. The FOS must hold a public consultation before making any rules, and the rules must be approved by the FSA. For the FOS to become involved, the consumer must want the FOS to be eligible and to deal with complaints. A person is eligible if they are the individual, or are directly related to the individual through the agreement, and they are covered by the FOS rules.
The credit business must have held a standard licence at the time of the complaint; the complaint must fall under a type of business included in the consumer credit jurisdiction; the complaint must also be outside the FOS's compulsory jurisdiction. That ensures that businesses do not become subject to multiple jurisdictions. 
Consumers can take complaints about firms to the FOS. On receiving a complaint from a consumer, the FOS will first check that the firm's internal complaints handling procedures have been exhausted. At present, firms have eight weeks to settle complaints before the FOS becomes involved. If at the end of this period a complaint has not been resolved, a firm will be obliged to let the consumer know about the FOS. If the criteria mentioned earlier have been met, the FOS will look into a complaint. The FOS will first try to settle a complaint informally before opening a case. If that is unsuccessful, the FOS will open a case to investigate a complaint.

Ian Liddell-Grainger: Will the Minister give way?

Gerry Sutcliffe: I should like to continue. My statement may generate more questions, so it may be helpful if those who have questions wait until the end.
Much of the FOS's work is carried out by correspondence so that neither consumers nor businesses need appear at a hearing. After considering a case the FOS will issue adjudication. A member of FOS staff other than the ombudsman could handle that stage of a case. If either party is unhappy with the adjudication it can request that the ombudsman review the assessment and make a determination. The FOS's decisions are based on what is fair and reasonable in each case. The FOS takes into account the law, the regulations, the regulator's rules, the relevant codes and good industry practice. That ensures that within the legal framework, the FOS can come to a practical, common-sense solution that has a better chance of being accepted by all parties. The FOS can order a range of imaginative redress mechanisms from either party to effect a just and amicable solution. 
If the consumer accepts the ombudsman's final decision, it is binding on the business. The FOS's decision can be enforced through the courts, and the FOS can inform the OFT of its determinations so that the OFT can take any necessary regulatory action. The clause is necessary to provide consumers with better and more accessible opportunities. 
My hon. Friend the Member for Northampton, North raised the disturbing case of the parking fine that escalates to £600 that in turn goes to a loan shark. She was correct to point out that the Bill does not regulate public debt. The Government believe that that would be outside the scope of the Bill. None the less, such issues must be tackled. That is why the Government launched its indebtedness strategy last year. It brought together groups from the public and private sectors. Particularly in the public sector, in local government and in central Government, the strategy examined how government itself contributed to debt in how it collected its payments and how it tracked individuals. 
The case that my hon. Friend raised, therefore, provides a good example of where things can go wrong, and I hope that that will influence the direction of that indebtedness strategy. To widen the scope to public debt would push the FOS too far outside its area of expertise, and it is outside the scope of the Bill. The FOS may take other debts into consideration but only in relation to the circumstances of the case and where regulated to other bodies. 
My hon. Friend the Member for Newcastle-under-Lyme gave his view on the Office of Fair Trading and his experiences of it over many years. His comments are on record, and I am sure that the OFT will be clear on what he said about how he feels it operates. I think that he was a little harsh. The Government recognised, through the Enterprise and Competition Acts, that it was important to ensure that the UK has a strong competition regime, and according powers to the OFT and the Competition Commission develops that. The developing expertise has led to the UK's being recognised as one of the leading competition regimes in the European Union and beyond.

Malcolm Bruce: I do not wish to join in the collective OFT bashing, but does not half the problem lie in what the Minister has just said? There is understandable  confusion in the public mind about a body that is called the Office of Fair Trading, but which when one takes fair trading issues to it says, ''No, that's not our responsibility; it's competition that we are dealing with.'' The name is wrong, because it does not describe the function, and that leads to considerable frustration and disappointment.

Gerry Sutcliffe: The hon. Gentleman has put his comments on record, and I am sure that the OFT will look at that. There may be an opportunity if it is necessary—it is not at this stage—as we review the effects of the Enterprise and Competition Acts to look at how those organisations are working and how his comments fit in. It is an important move away from the idea that Ministers should take the final decision on competition issues. It is better that there be a detailed, professional look at the issues.
Ultimately, as I said earlier, the OFT must appear before the various Select Committees and must meet the Secretary of State for Trade and Industry. The OFT's developing expertise is important and progressive. The position of financial services ombudsman is established and works well in other jurisdictions. I hope that this will not be a soft touch. That would be a tragedy given the spirit in which we have worked on the Bill. We have worked with all stakeholders, be it industry or consumer groups, to get to the right level. We have talked about responsible lending and borrowing to ensure a fair approach and to ensure that, when people enter into agreements, they fully understand them for the lifetime of those agreements.

Paul Farrelly: I am glad that the Minister said that I was only a ''little harsh'' rather than ''very harsh'' about the OFT. My OFT bashing was not meant to be a criticism of the Bill, which is a wonderful step in progressing regulation. I was pointing out that I hope that some regulatory competition, with a bit of backbone, will help the OFT to become a harder touch.

Gerry Sutcliffe: I acknowledge my hon. Friend's point. I assure the Committee that I meet regularly with the director-general of the OFT, Sir John Vickers. Sir John will leave his post later in the year, and there will be a replacement. We will have to look at how people see the OFT's role in the context of the Bill. I acknowledge the concerns raised and will pass those on to the OFT. The hon. Member for Bridgwater asked several questions. I am not sure that I have answered them, so I shall give him the opportunity to reply.

Ian Liddell-Grainger: I have two supplementary questions. One concerns the delay in the FOS deciding what the outcome will be. One problem with such cases has always been that they can drag on interminably. The second issue is that the Minister said that either party can go to the ombudsman. As I said on the Select Committee on Public Administration, which deals with the ombudsman, the ombudsman is swamped most of the time. The problem is that either party  could decide that it is much easier simply to make their views known and pass the matter to the ombudsman, which would cause an enormous delay.
The hon. Member for Northampton, North very eloquently expressed how emotional the process is. The Minister knows that the longer the delay, the more the credit piles up, and the situation becomes much worse. There is the potential for a delay of three or four months, perhaps longer, if there is no agreement when it reaches the ombudsman. 
Finally, I refer to the matter of a complaint being dealt with by the ombudsman on the condition that it cannot be dealt with under the compulsory jurisdiction. The Minister mentioned voluntary and compulsory jurisdiction. When does one become the other? If the complaint cannot be dealt with under the voluntary jurisdiction because one party does not agree, is the matter then resolved under compulsory jurisdiction? Could the Minister clarify that?

Gerry Sutcliffe: We are adding a third jurisdiction—the consumer credit jurisdiction. I take the point about the time delay. One of the industry's concerns was that many complaints would be piled on to the ombudsman, in the way that the hon. Gentleman mentioned. A levy is to be applied to the industry to deal with the costs of the issues surrounding ADR. Firms must deal with complaints with their own structures within eight weeks. They must prove that complaints have gone through all their in-house processes.
If the complaint has not been resolved after eight weeks, the firm must inform the consumer about the FOS, which can then become involved. A first attempt can be made to settle the complaint informally, not necessarily by the ombudsman himself. If that does not work, the ombudsman service will open a case and investigate. After consideration, an adjudication will be issued. If either party is unsatisfied, the ombudsman will make a formal determination. A benefit to the consumer is that if they accept the final decision, it becomes binding on the business and can be upheld by the courts. 
With regard to the point about the additional workload associated with the consumer credit jurisdiction, the FOS is well resourced in terms of staff expertise in consumer credit issues. It already handles a large proportion of consumer credit business under its existing jurisdictions, because banks and building societies provide about 75 per cent. of consumer credit businesses in the compulsory jurisdiction. The additional workload is not expected to be large. Estimates based on research conducted by MORI indicate that the FOS might expect to receive a maximum of about 13,000 additional consumer credit complaints a year. Any such increase is unlikely to overburden the FOS. Furthermore, much of the current FOS workload is made up of mortgage endowment complaints, and it is anticipated that the number of those complaints will begin to fall. In addition, the gradual phasing in of consumer credit  activities to the FOS's jurisdiction will allow it to take on activities consistent with its capacity to handle the volume of complaints, given its workload. 
There has been an increase of 57 per cent. in the number of cases received. The FOS has maintained its targets for dealing with complaints: 45 per cent. within three months, 80 per cent. within six months and 90 per cent. within nine months.

Ian Liddell-Grainger: The Minister has almost answered his own question about the level of complaints to the ombudsman. Every Member knows how difficult it is to get the ombudsman to deal with complaints. I have two suggestions for the Minister: first, will he examine the possibility of a credit ''holiday'' so that interest does not continue to rack up?

Sally Keeble: An interest holiday?

Ian Liddell-Grainger: Yes, I thank the hon. Lady for her help. Given the delay on the ombudsman's part, can the credit holiday option be examined?
Secondly, will the Minister examine the possibility of a definition of ''seriousness'', so that cases can be categorised. The ombudsman has been trying to pigeonhole cases into levels of seriousness. The hon. Member for Northampton, North spoke eloquently about the desperation factor. Some people will be able to pursue their cases, but many others will not, and they will have no choice. I am aware of the complexities, but if there are some 13,000 running cases, the situation will simply continue to deteriorate, and many cases will not be resolved until it is too late.

Gerry Sutcliffe: I understand where the hon. Gentleman is coming from and what he is trying to achieve. The FOS can operate within its capacity with regard to targets. It will be able to cope with various businesses. During our discussions on other clauses, we dealt with accumulation of interest. I shall come back to the hon. Gentleman on that issue.

Sally Keeble: I understand that it is important to have a freeze on interest while a case is being progressed. The Minister has reassured us that the FOS can deal with the number of cases. Can he also reassure us that the FOS is geared up to deal with various types of cases? Does it have the necessary skills to deal with people who have small debts that they find it impossible to manage? Complaints about administration and technical issues may be well-founded, but the FOS may not be familiar with certain types of complaints. I have referred certain cases that I can well imagine would be difficult to deal with.

Gerry Sutcliffe: I refer my hon. Friend to my previous remarks about the consultation process and how we arrived at the FOS with regard to stakeholders working with the industry and consumer groups that understand the complexity of the disagreements and the ensuing problems. I strongly suggested that the FOS was the appropriate route because of its experience and its ability to operate in other jurisdictions.
Information on interest has not yet been forwarded to me. We must be careful not to micro-manage the FOS; we must trust its expertise and independence. I can only say to the hon. Member for Bridgwater that I think that we have covered the issue of accumulated interest and what can be done about it. [Interruption.] On the other hand, in news just in, I am now told that we have not examined situations when debt interest stops. The Bill has no provision to stop interest being charged in such situations. I shall investigate that issue.

Ian Liddell-Grainger: Perhaps I could help the Minister. All members will agree that it would be unacceptable for that scenario to continue. When the situation becomes compulsory rather than voluntary, perhaps the Government should think about letting the guillotine down. The hon. Member for Northampton, North is right; this situation cannot be allowed to continue. We know that the FOS can run out of time and cases could continue for three or four months. The Minister decided voluntarily to take things to that stage. If it becomes compulsory, it is because it needs to be taken further. Perhaps the Minister could consider that as a cut-off time.

Gerry Sutcliffe: I am happy to do that. However, the ombudsman can deal with a complaint in various ways, and he may be able to deal with that matter through the consideration of cumulative interest.

Ian Liddell-Grainger: It gives him the chance.

Gerry Sutcliffe: In that spirit, we shall examine those issues in the context of financial ombudsman service solutions. I hope that that explains everything.
This has been an important debate, as the system that we are introducing is new. I hope that, in the light of the caveats that I have provided, hon. Members will accept the clause. 
Question put and agreed to. 
Clause 59 ordered to stand part of the Bill. 
Schedule 2 agreed to.

Clause 60 - Funding of ombudsman scheme

Laurence Robertson: I beg to move amendment No. 44, in clause 60, page 49, line 41, at end add—
 '(16) No licensee shall have to pay to the Ombudsman or its scheme operator any money until such time as the case is decided against him.'. 
Perhaps I could provide a little background on how I see the situation, not just on the funding of the ombudsman scheme that clause 60 deals with, but with the general principle. I can illustrate my point with an example. Some time ago, one of my constituents who was an independent financial adviser was reported by a client to the authorities. He was charged £500 for the  pleasure of having his case heard. The complaint against him was dismissed, and it might be reasonably assumed that he could claim back his £500. I am afraid that that was not the case. That seems very wrong for two reasons. First, why should he pay anything when the case was dismissed? That seems to fly in the face of justice; we do not normally fine people who have not committed an offence. Secondly, it gives rise to the possibility that vexatious litigants keep reporting someone whom they do not like until that person is bankrupt. 
My amendment states: 
 ''No licensee shall have to pay to the Ombudsman or its scheme operator any money until such time as the case is decided against him.'' 
I do not see what objection there could be to such an amendment. I know that there is a precedent to the opposite effect; and I know that it may affect other legislation. However, I do not see how it can be fair that people should have to pay what are, in effect, fines when they have done nothing wrong. I look forward to hearing what the Minister has to say.

Gerry Sutcliffe: It will come as no surprise to the hon. Gentleman that the Government will resist the amendment. It is a principle of the ADR scheme that it is self-funding, and amendment No. 44 could make that impossible. It is also a fundamental principle of the ADR that it should be free to the consumer. That ensures that all consumers have access to redress mechanisms, not just those who can pay for them. The ADR funding arrangements should recognise the unequal bargaining positions of firms and consumers. I seek to correct that imbalance so that cost is not a barrier for consumers when seeking redress.
Under clause 60, the ADR scheme would be funded by a modest annual levy, and a case fee will be payable by those businesses against which complaints are considered. There will be a levy and a case fee. The majority of firms will never pay the case fee. Their cases do not get as far as requiring ADR— 
Sitting suspended for a Division in the House. 
On resuming—

Gerry Sutcliffe: To recap, I had said that the ADR scheme would be funded by a modest annual levy with the case fee payable by those businesses whose complaints are considered at ADR. I also said that the majority of firms will never pay the case fee if their cases do not get as far as requiring ADR. Firms that come before the FOS currently get the first two cases in a year free anyway. Therefore, ADR will be much cheaper for firms than going to court.
I am not clear how the proposal to fund the arrangements would work in the scenario offered by the hon. Member for Tewkesbury (Mr. Robertson). Case fees for businesses that lose cases will be likely to increase dramatically. The FOS takes all steps possible to ensure that firms do not pay unnecessarily for ADR. When the FOS receives a complaint, it attempts to  resolve it informally before the case is opened. If it is successful, no case fee is payable. The FOS will consider a complaint only when a firm's internal complaints handling procedures have been exhausted; the FOS also has a screening system to filter out complaints that are obviously frivolous or vexatious. The outcome of the ADR is rarely as straightforward as simply upholding or dismissing a complaint; and the solution given by the FOS is often somewhere between a win or a lose for the consumer or the lender. As such it is not usually obvious whether a firm should pay the case fee or not. 
It is vital that the FOS be independent of both consumer and firm, and it must be seen to be independent. A case fee determined by the success of a complaint would give the FOS a financial stake in its own determination, and that would undermine industry and consumer confidence in the ADR scheme. Although the Bill gives the lender many opportunities to avoid going as far as the ADR, it also ensures that the FOS remains self-funding. If the case fees are too small, firms may be put out of business, and we do not want that. 
I hope that with that explanation the hon. Member for Tewkesbury will withdraw his amendment. If he does not, I shall have to ask the Committee to vote against him.

Laurence Robertson: As my hon. Friend the Member for North-East Bedfordshire (Alistair Burt) has said, the Minister has a reputation on the football field for letting nothing past him. However, that does not mean that the Opposition stops trying. In spite of the Minister's detailed response I am not satisfied that these arrangements are in keeping with the spirit of natural justice. At one point, the Minister said that if firms that were cleared of an accusation did not pay, those that had cases proved against them would have to pay more. Well, what is wrong with that? That is in keeping with the spirit of natural justice.
I accept that there may have to be an annual fee so that the body can operate. I do not dispute that; neither does my amendment. However, it is not right that a firm should have to pay a fee when the case against it is not proven and, indeed, is thrown out. That is simply not right. Therefore on this rare occasion the Minister has failed to persuade me that we should let this one go. As on the football field we shall have to try to slip this one past him. I realise that he has the officials on his side just as he has on the football field but I do want to press the matter to a Division. 
Question put, That the amendment be made:—
The Committee divided: Ayes 5, Noes 7.

Question accordingly negatived. 
Clause 60 ordered to stand part of the Bill. 
Clause 61 ordered to stand part of the Bill.

Clause 62 - Monitoring of businesses by OFT

Amendment made: No. 6, in clause 62, page 51, line 3, leave out '1' and insert '1(1)'.—[Mr. Sutcliffe.] 
Clause 62, as amended, ordered to stand part of the Bill. 
Clauses 63 to 68 ordered to stand part of the Bill. 
Schedule 3 agreed to. 
Clause 69 ordered to stand part of the Bill. 
Schedule 4 agreed to. 
Clause 70 ordered to stand part of the Bill.

New Clause 1 - Credit-token specification

'After section 14 of the 1974 Act insert— 
 ''14A Credit-token specification 
 A person carrying on a consumer credit business and providing a credit-token agreement to an individual must specify in the agreement the type of credit token that will be provided and may not provide other additional credit-tokens, including cheques, that may be used to draw on credit accounts without the agreement of the debtor.''.'.—[Mr. Plaskitt] 
Brought up, and read the First time.

James Plaskitt: I beg to move, That the clause be read a Second time.
The purpose of new clause 1 is to end the unwelcome practice of the unsolicited issue of credit card cheques. I make it clear that the purpose of the amendment is not to end credit card cheques themselves, simply their unsolicited issue. At the moment credit card cheques are sent out to 16 per cent. of all households in the United Kingdom, which means that millions of people receive them. They are sent repeatedly, often in multiple issue, and they are virtually always unsolicited. 
The Select Committee on Treasury has taken much evidence on this practice. That evidence suggests that those cheques are sent to a greater than average proportion of cardholders who are already experiencing some form of financial difficulties. I find it hard to see a justification for the existence of the cheques at all, but the new clause does not drive that far. Credit card cheques are not really an extension of the cards, as the industry argued when giving evidence to the Treasury Committee. 
I recently met Detective Chief Superintendent Ken Farrow of the City of London police fraud squad, who is making a special investigation of the matter. He told me that criminals are able to use credit card cheques to commit fraud because cheques are not secure and because they are sent out unsolicited. That is a significant additional factor that must be borne in mind when considering the consequences of issuing those cheques.

Malcolm Bruce: I am sympathetic to most of what the hon. Gentleman has said about credit card cheques. However, there are circumstances in which they are relevant, and I am not sure whether his clause would cut against those. For example, one might purchase a significant item, within one's credit limit, for which the provider will not accept credit card payment. Presumably one could use the cheque and effectively get a credit card payment, which would suit one's purpose. I agree with most of the other strictures about credit card cheques. However, is that not a legitimate use, and would his clause adversely affect that?

James Plaskitt: The new clause would not adversely affect that type of offer, because I am not seeking to remove credit card cheques from the system entirely; I am simply trying to bring an end to their unsolicited issuing. In a moment, I shall address some of the issuers' arguments in defence of their practice, and I will test those arguments against the point made by the hon. Member for Gordon.
There is also a problem with regard to the repeat issuing of cheques. An examination of the marketing material that companies use when they issue the cheques is quite informative. For example, the leaflet that MBNA issues with its cheques, entitled ''Making the most of your credit-card cheques'' states: 
 ''Credit card cheques make perfect gifts for family and friends and are a really clever way to use your MBNA credit card account''. 
The Halifax also issues promotional material with its cheques and makes a series of suggestions as to how its customers might use them. For example, it suggests using them to pay for club memberships, holidays, home improvements, school and university fees, or to buy oneself gift or treats.

Chris Bryant: Has my hon. Friend received a copy of a letter that I received from the Association of Payment Clearing Services, which moaningly states: 
 ''Credit card cheques can be used to pay for goods and services where cards themselves are not accepted. For example, with tradesmen such as plumbers or decorators who do not accept credit cards.'' 
Surely that is one of the craziest ways to use a credit-card cheque.

James Plaskitt: Yes. Interestingly, when the Treasury Committee requested information from card issuers on how many times cheques are used in that way, they were unwilling to provide any reliable information. Instead, the issuers' material is very heavy on suggesting to customers how they should spend the cheques, but extremely light on information telling customers how much the cheques will cost them.
It is important to acknowledge that the cheques do not extend anyone's credit limit. However, they are used to prod consumers to spend up to their credit limit. Therefore the customer may have to apply for an extension of their credit limit earlier than might otherwise have been the case, or the card supplier may make an unsolicited offer of an extension to the credit limit. It may bring forward the time at which the customer has to resort to taking out another card and, hence, the process of accumulating cards begins. The Committee has discussed that problem. If a customer is using up their credit limit it also becomes more likely that they will incur penalty fees, and the Committee has also discussed the impact of that.

Laurence Robertson: I am following the hon. Gentleman's argument very carefully—it is very persuasive. It is purely my ignorance that causes me to intervene; will he clarify how a credit-card cheque causes the customer to extend their credit limit. I thought that it was more a matter of transferring credit. I am not quite following that point.

James Plaskitt: Perhaps the hon. Gentleman misheard me. The use of a credit-card cheque does not extend anyone's credit limit. However, if a card-holder receives an unsolicited credit card cheque and is encouraged to use it, they will use up some of their credit limit, which may result in the need to extend their limit earlier than otherwise would have been the case. I accept that argument, which credit issuers use in defence.
I wish to highlight the consequences of responding to encouragement to use up credit card limit by receipt of the cheques. In October 2004, the four principal issuers appeared before the Select Committee on Treasury. I asked them to justify their practice of issuing these unsolicited cheques. Their responses were interesting. Mr. Varley, the chief executive of Barclays, argued that customers use the cheques to effect balance transfers from one credit card account to another, perhaps to take advantage of an introductory offer that would, for a time, reduce the interest payable on the balance. Sir Fred Goodwin, the chief executive of the Royal Bank of Scotland, suggested that the practice allowed customers to pay for goods or services that they might not otherwise have been able to pay for. That echoes a point raised by my hon. Friend the Member for Rhondda (Christ Bryant). Mr. Flynn, the  chief executive of MBNA, said that it gave people an opportunity to access their credit line. Mr. Geoghegan, the chief executive of HSBC, claimed that the practice was justified because people who do not have bank accounts find it easier to use a credit card cheque. 
Interestingly, none of the four justifications addressed the word ''unsolicited'', which was included in my question. They were making an argument for the existence of credit card cheques, and I might be prepared to concede those points. However, they do not make convincing arguments for the unsolicited issuing of cheques. That is the purpose of my new clause.

Paul Farrelly: My hon. Friend will remember that Mr. Varley's predecessor, Mr. Barrett—who is now chairman of Barclays—told the Treasury Committee that Barclaycards were a bad deal and that he would not recommend them to his relatives.

James Plaskitt: I thank my hon. Friend for reminding me of what I refer to as the famous ''Matt Barrett moment''. I am happy to tell my hon. Friend that Barclays chief executives continue the practice of being hideously honest. Mr. Varley had his own ''Matt Barrett moment'' when he appeared before the Treasury Committee in October 2004. I accused him of using credit card cheques to prod his customers into using up their credit card limit. His answer was: ''Marketing is prodding.'' Such honesty is revealing.
Many people think that credit card cheques are a menace and could be used fraudulently. Shredding is the only secure way to dispose of unwanted, unsolicited credit card cheques: the only positive achievement made by these cheques may be their contribution to the explosive growth of shredding machines in the home. Unsolicited issuing amounts to opportunistic marketing of the worst kind. If the issuers were honest about the reasoning behind such unsolicited issuing, they would have to confess that their hope is that their cheques drop on the doormat on the same day as the glossy holiday brochure. The customer puts two and two together and ends up paying six. It is a cynical ploy. 
APACS has been lobbying hard to discourage Committee members from supporting my clause. APACS's brief arrived today, and I have read it carefully. I continue to be astonished by the line taken by the association. It argues against my new clause by stating that credit card cheques are 
''typically treated as the equivalent of a cash withdrawal.'' 
That is not the case. Credit card cheques are nowhere near the equivalent of a cash withdrawal. If I were to make a cash withdrawal from my bank and put the money in my wallet, I would not pay interest on it while I carried it around. 
However, if I were to lodge money in my account using a credit-card cheque, from the second that that money appears in my account, I would begin to clock  up interest. By no stretch of the imagination is APACS correct when it states that using those cheques is equivalent to a cash withdrawal; it simply is not. 
The Consumers Association has lobbied hard for an end to the unsolicited issuance of those cheques, and the Treasury Committee has twice recommended the end of the practice. Earlier, we discussed my right hon. Friend the Minister's prowess on the football pitch and how good he was at stopping balls from going into the net. I am trying to get the ball into the same net as the Minister because in the White Paper—''Fair, Clear and Competitive''—the Government stated: 
 ''The Household Survey identified certain lending practices which disproportionately affect people who are at risk of over-indebtedness and potentially make a bad situation worse. While it would be wrong to claim they cause over-indebtedness, they could be seen as being irresponsible.'' 
Those practices include the 
''unsolicited issuing of cheques that can be used to draw on credit card accounts.'' 
The Minister and I are on the same team, aiming for the same net. I hope that he appreciates that my new clause is designed to be entirely helpful. I wish to bring about a modest but important change so that the customer must opt to receive credit card cheques. We can solve that problem and address the dangers of unsolicited issuance by altering arrangements so that if customers wish to avail themselves of a credit card cheque for any reason, they must initiate the process by which the credit card company issues those cheques. I wish to end the current opt-out arrangements that the industry considers adequate. I do not consider those arrangements adequate because they require customers to act to cease the flow of cheques; they must make a telephone call or write a letter. The onus should be on the customer to initiate that relationship, not to stop it. 
The amendment aims to alter the current arrangements from customer opt out to customer opt in. If the industry is so confident that customers want these cheques, I do not see why it should resist. If the industry believes that, and if it is true, customers will simply initiate the process and the cheques will flow. Frankly, I do not believe the industry. Most people consider credit card cheques to be irritations that carry the risk of fraud. For all those reasons, I hope that the Minister will support the amendment and help the Committee to save people from that infernal nuisance, and do millions of card-holders a favour.

Alistair Burt: I have considerable sympathy with the points made by the hon. Member for Warwick and Leamington (Mr. Plaskitt) because his amendment sends an important signal. We are concerned that when we talk to constituents about their difficulties many say how easy it was to become involved and how quickly things started to go wrong. As I remarked earlier, it is taken for granted that credit is useful in a free-market society. We seek only to prevent the worst excesses of those who might use the credit system to exploit people.
The issuing of credit cheques is not dissimilar to the messages that people occasionally get on their mobile phones telling them that they have won a certain amount of money. All that they have to do is dial a number to find out about that prize. By the time that they have done that, they find that they have paid out quite a bit to win not very much at all, or, in some cases, absolutely nothing. 
It is a process of enticement. It is easy to strike people at a vulnerable time and offer them that bit of extra money. Sometimes the money will be for a necessity; at other times it will be for an aspiration. The hon. Gentleman described how the credit cheque arrives at the same time as the brochure. The extent of advertising tempts people to do themselves a favour, give themselves a little treat or give themselves something that they deserve. That is increasingly hard to resist, especially for people who have difficulty in managing money. That temptation can be the thing that sets them off, making them take the loan. 
The hon. Gentleman stated that the onus should be shifted so that if those instruments are to be workable, negotiable and helpful to the credit industry, they should be available, but only on application. Let us make it slightly less easy for people to get trapped. 
I thank those who have offered us information on this subject. I have been impressed by what Which! magazine and the Consumers Association have said, and I offer my general support to the hon. Gentleman. I will be interested in how Gerry ''the Cat'' Sutcliffe responds to the ball that has been lobbed up and is now hovering dangerously above him in the six-yard zone.

Chris Bryant: I shall as brief as I can, but my Whip has reminded me that I am always long-winded, so I do not know how successful I shall be. Some of the points that have been made refer to Tuesday's conversations about the marketing processes that are used to encourage people to get into debt that they cannot necessarily afford, and they go to the heart of responsible marketing and lending. My hon. Friend the Member for Warwick and Leamington said that opting in or opting out was important. In their notes to us, the Association of Payment Clearing Services said:
 ''The APACS guidelines, which were first introduced in March 2004, cover transparency requirements and the facility for the cardholder to opt-out from receiving cheques.'' 
Is that, then, the end of the matter, and is all is fine and dandy? 
As others have already said, this should be a question of opting in. If people have a real need to use those cheques and they fully understand the additional charges that such a loan will incur, of course they should be allowed to take one. However, they should request information rather than receive unsolicited offers. 
 ''We advocate that self-regulation on credit card cheques through the Banking Code—coming into force in March '05—should be allowed the chance to 'bed down'.'' 
The last Consumer Credit Act came into force a long time ago, and my constituents would not look kindly on the idea of another 31 years of ''bedding-down''. The banking code is not strong enough. It does not say anything about opting in, and it does not attack the principal mischief, which is the unsolicited nature of credit cheques. The code states: 
''Issuers should not issue unsolicited credit card cheques with a pre-completed amount''. 
That is not the issue. This is not about cheques that stipulate an amount—say, £6,000—to spend; this is about blank cheques that one can sign up to the credit limit. That is where the real danger lies, and that is why we cannot rely on the banking code alone. 
APACS, in its final argument, tries to convince us that there is not much of that sort of thing going on anyway. It says: 
 ''Of credit card cheques issued, we estimate that less than one million will be presented for payment on a quarterly basis. This compares with some 470 million credit card purchases for a similar period.'' 
One million seems like quite a lot to me. However, if it were not such a large amount, APACS would not be so worried if that figure were to be curtailed by pulling the teeth of the issue. 
Football is not my sport. Rugby is more to my taste, but the Minister and I are certainly playing in the same team. Even if the wording is not correct for what we want to achieve, I hope that we will get a try today that he can convert into a goal on Report.

Gerry Sutcliffe: I thank my hon. Friend the Member for Warwick and Leamington for moving new clause 1, and I have a great deal of sympathy with his objectives. Going by his record on the Treasury Committee, he has a good history of teasing out issues from the variety of witness that appear before that Committee. I had a wonderful opportunity to appear before a Select Committee recently, and I know that its members are dedicated to teasing out information in a positive way to ensure a good outcome.
Hon. Members have talked about the messages that the Committee is sending out about its expectations. When we talked about the unfair credit test, I was clear not to lay down any parameters on how unfairness should be described. However, hon. Members sent out very clear messages about what their expectations were. The way in which my hon. Friend moved the new clause has also sent out very clear messages. We have heard from APACS and others about the banking code coming into effect on 1 March and the changes that it will bring. The Committee and my hon. Friends want that to go further. 
My hon. Friend's new clause specifies what other credit tokens may be used to draw on the account, such as credit card cheques that may be provided to the debtor under the credit agreement. There should not  be provision of such credit tokens to the debtor unless specifically requested by the debtor to do so, and this relates to unsolicited credit card cheques to consumers. 
I am very sympathetic to my hon. Friend's concerns and the concerns of hon. Members across the Committee. I, on behalf of the Government, have considered my hon. Friend's new clause very carefully. The essence of those concerns can be dealt with under the existing powers of the Act, and I will go on to explain why I think that can be done. 
The Act gives clear powers to the Secretary of State to make regulations dealing with matters such as the form and content of credit agreements and information to be given by businesses to consumers. Hon. Members will appreciate that although we have the ability to deal with the agreements relating to credit card cheques, in many cases if the issue of the credit card cheque is addressed in the agreement at all, it will be done in the small print. We do not consider that to be appropriate. Consumers should be clearly informed at the time they make the agreement that they may be sent credit card cheques, and what that means. 
The Government intend to make regulations to require that consumers are clearly told at the outset that they may be sent credit card cheques and that the charges associated with such cheques are also clearly explained at the time, including the charge that starts immediately after a cheque is used, if that is the case. 
We also consulted about whether other warnings may be required—for example, that using a cheque instead of a credit card to buy goods or services is the same as using cash. Using cheques means that the credit card issuer will not be jointly liable with the supplier for defects as happens when a credit card is used. My hon. Friend will appreciate that the key purpose of this Bill is to inform consumers. 
The Government's approach means that consumers can be informed about the implication of using credit card cheques and that they will be informed when they make the agreement. Hon. Members will appreciate that the Bill already provides new avenues of regulation and redress in respect of credit card cheques. The OFT can take steps to stop bad practices under its new powers by imposing requirements on licensees for them to stop those practices and, if they do not, can impose financial penalties.

James Plaskitt: I am grateful to my hon. Friend for outlining several existing options that the Government have to pursue regulation. Is he saying that he is minded to pursue any or all of those routes in order to achieve a customer opt in, as opposed to the current opt out?

Gerry Sutcliffe: My hon. Friend should bear with me as I give further explanation, as it may become clearer to him why I am being careful with the language that I am using.
Consumers can challenge unfair practices through the new unfair relationship test, and consumers can bring cases before the new financial ombudsman service to seek redress. I encourage the industry to  examine its practices and consider how it can take clear and effective steps to ensure that credit card cheques, which have some legitimate uses, as we heard from the hon. Member for Gordon and my hon. Friend the Member for Warwick and Leamington, are provided responsibly and do not act as a means to increase indebtedness of consumers, particularly the vulnerable. 
I have heard many convincing arguments from my hon. Friend and hon. Members, the industry and consumer groups. I hope that the existing powers and the regulations that could flow from the Bill will meet my hon. Friend's objectives. He will know how the process of secondary legislation works through a statutory instrument, which may assist the situation. 
At present the new clause is very wide and may not achieve my hon. Friend's intention. With sincerity, with caution, and with the careful use of words that I am offering, we believe that the existing Act gives us the opportunity to meet his objectives through secondary legislation. There must be consultation on that secondary legislation. If that does not satisfy my hon. Friend, the new clause, as it is drafted, is too wide to deal with the issue in the detail that he wants, and we would have to consider another way. I hope that is helpful to him. I have discussed the issue with my hon. Friend before, and I know the sincerity and urgency with which he wants to see this matter resolved. I share that urgency, but the route that I propose might help him to achieve his objective better than the new clause.

Paul Farrelly: I agree with the Minister that the clause is widely drafted and may not have the desired effect, because the point was made that something could be put in the agreements whereby customers agree to being sent various offers from time to time, which they may or may not choose to take up. I agree with that. Likewise, the Minister may find new clause 2 too restrictive, because it specifies particular ways in which a customer may make contact, but it does not include e-mails or other forms. Nevertheless, the intent is clear.
When the Minister mentioned regulations and statutory instruments, did he mean regulations to provide more information, or if a practice is the subject of many complaints—for instance, to the financial ombudsman service—might there be an SI to bar the practice of issuing unsolicited cheques full stop?

Gerry Sutcliffe: The difficulty is perhaps that I was on the test for unfairness; if I prescribe a solution now, I could be accused of not following the normal process. We have set out the powers of the OFT in the Bill, how consumers can challenge unfair practices and the role of the Financial Ombudsman Service in seeking redress. We will not be dealing with new clause 2, as I am sure my hon. Friend is aware.
My hon. Friend the Member for Warwick and Leamington quoted from the White Paper, telling the Committee how it reported on credit card cheques. I am trying to be as helpful as possible, in my usual manner. I hope that the Committee will accept that secondary legislation will achieve what my hon. Friend  wants. As my hon. Friend the Member for Newcastle-under-Lyme pointed out, the new clause as drafted would not achieve the desired end. In any case, I ask my hon. Friend the Member for Warwick and Leamington to withdraw the new clause, because we would have to reconsider section 51 of the 1974 Act in more detail. However, I am convinced that, with the powers in the Act and with secondary legislation, we can achieve what my hon. Friend wants.

James Plaskitt: I think that the Minister and I are still on the same team—it feels like it. I am grateful that he has acknowledged the urgency of the issue, as millions of customers are regularly annoyed. I am heartened that he agrees with the objectives of my new clause, although I accept that there are imperfections in its drafting. Alas, the clever people in the banks would quickly work out a way round the defence that I have tried to raise to prevent the issuing of additional credit tokens. I interpret as a positive omen the Minister's assurance of a route through secondary legislation in the not too distant future and his assurances that he fully shares my objectives. Since I recognise the imperfections in the drafting of the new clause, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.

New Clause 3 - Duties of lenders and debtors

No. NC3, to move the following Clause:— 
DUTIES OF LENDERS AND DEBTORS 
 '(1) A lender who provides credit or loans to a debtor so that the debtor may purchase goods and/or services from a third party, who acts as an agent for the lender, in terms of signing debtors up to financial agreements, shall take all reasonable steps to ensure that— 
(a) the goods and/or services provided by the goods and/or services provider are of a merchantable quality; 
(b) that the goods and/or services are legal; 
(c) that the provider of the goods and/or services, when acting as a credit agent on behalf of a lender, does so in a professional and honest manner and behaves in a way which could be considered reasonable in all aspects; 
(d) that the provider of goods and/or services, when acting as a credit agent on behalf of the lender, has not acted fraudulently in any way with respect to the setting up and/or running of the credit agreement and the provision of those goods and/or services; and 
(e) that the goods and/or services provider, when acting as a credit agent on behalf of the debtor, complies with the requirements of this Act and the 1974 Act. 
 (2) It shall be for the debtor to demonstrate that the provider of goods and/or services has acted in an irresponsible or illegal way, having regard to the subsections above. 
 (3) If the debtor so demonstrates, it shall be for the lender to show that he has taken all reasonable steps to ensure that the requirements of the above subsections have been met. 
 (4) If the lender fails so to do to the satisfaction of the court, the court shall have the power to review the agreement.'. —[Mr. Robertson] 
Brought up, and read the First time.

Laurence Robertson: It may be helpful, to present this clause as clearly as possible, if I explain to the Committee the mischief that I seek to remove. I want to give an example, but it is by no means a single example; it happens all too frequently. A school in my constituency had been  dealing with a company that supplied photocopiers. The company had a change of personnel and told the school that it could offer a new deal on a new photocopier. The school agreed. The company said that there was no need to fill in any forms, as there was a signature. The company said that it would sort everything out. The company duly supplied a new photocopier.
The problem was that the photocopier was not financed by the company; it was financed by a third party, Abbey National. It turned out that the agreement for the photocopier had been fraudulently drawn up—the police are investigating the matter as we speak. The problem was that Abbey National, which had no part in the fraud but which had supplied the money, asked for its £14,000 back. The school is a primary school, and £14,000 would have put a huge hole in its budget. I got involved and I got the police involved. Eventually, to Abbey National's credit, it reduced the amount to be repaid to a more realistic £4,000. 
The difficulty was caused by the school's dispute with the company that supplied the photocopier. That company was acting as a credit agent for Abbey National, to which the school owed money. That is not an unusual situation; it often happens with hire purchase agreements. Problems can, however, arise. For example, let us suppose that the Minister is a car dealer from whom I purchase a car. Let us also suppose that you, Mr. Benton, finance that purchase. In that situation, I have an ongoing relationship with the financier—whom I have a duty to pay—rather than with the car dealer. Were I to cease my payments, you, Mr. Benton, as the financier have a legal redress, and may be able to seize the car. I, however, have no such comeback with the Minister, the supplier of the car. Such relationships are subject to agency law, which must be re-examined. 
I seek to put a duty on the lender, not to go into minute detail, but to take all reasonable steps to ensure that his or her agent—who provides people with perhaps several thousand pounds—acts in a proper, professional, reasonable and legal manner. It is not unreasonable to expect that. Were we to turn it on its head and say that the downside for Abbey National—to return to the case I cited—would be that it would lose business, are we thus saying that most of its dealings are with crooks? That is not the case. In English law credit providers or financial services sellers are heavily regulated—they have to give best advice among other requirements. There is a difficulty in that those who act as their agents do not have to give the same duty of care to the people they advise. As a result, some people can get into terribly complicated situations. 
I return to the example of the car dealer. There may be a way to get back to the initial dealer, but it is almost necessary to go nuclear. Agency law must be re-examined. I should be interested to hear whether the Minister explored that area of law.

Gerry Sutcliffe: I am going to surprise the hon. Gentleman: I agree with his argument.

Laurence Robertson: There is not going to be a vote, then?

Gerry Sutcliffe: There may still be a vote.
The hon. Gentleman eloquently set out the case for what is required. The 1974 Act already covers the points he raised. Section 56 determines the accountability of the lender for representations made by certain persons supplying goods and involved in negotiations to get consumers to enter into credit agreements. It makes lenders responsible for things said or done by such persons or agents. 
The existing provisions go further than the hon. Member's new clause in that they apply not only to an actual relationship of agency, but in cases where a relationship can be inferred from the behaviour of the supplier. An agreement will be void if it purports to exclude any person, including the lender, from liability for any act or omission by the credit broker or the supplier acting as agent on their behalf. 
In addition, section 75 of the 1974 Act provides that where a connection exists between the lender and the supplier of goods and services, the creditor will be ''jointly and severally liable'' for any misrepresentation or breaches of contract by the supplier. That would apply, for example, to purchases made with a credit card. 
Given that the protection already offered to consumers under sections 56 and 75 of the 1974 Act not only covers but goes beyond the hon. Gentleman's points, I hope that he will see that his new clause is unnecessary. However, I understand the nature and detail of his argument.

Laurence Robertson: My problem is that when we looked into the situation involving the school and the photocopier, we seemed to be unable to move the case forward at all. That was despite taking legal advice, and, indeed because a school was involved, the legal department thoroughly examined the case. I will look at the case again and see whether the legal bods missed something. As I have often said, I am not a lawyer and cannot be expected to advise on the law. However, I want to re-examine the case, and perhaps we could return to it on Report, or consider it in another Committee.

Gerry Sutcliffe: I will help to facilitate meetings with the officials and lawyers who advised me. That may help the hon. Gentleman to make progress with the case.

Laurence Robertson: I am extremely grateful to the Minister for his helpful response. I do not want to make this matter purely about me and my constituency. Many schools in Gloucestershire fell foul of that company in that particular situation. Any clarification will help at a national level, but it will also help those schools. The matter is not too small to be important so I am grateful to the Minister for his sympathetic response. With that in mind, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.

New Clause 4 - Liability of debtor on termination of hire-purchase etc. agreement

'Section 100 of the 1974 Act shall cease to have effect, other than for those agreements in place at the time of this Act coming into force.'. —[Mr. Robertson] 
Brought up, and read the First time.

Laurence Robertson: I beg to move, That the clause be read a Second time.
This is our last throw in Committee so I shall try to make it a good one. This new clause refers to what is often termed the ''half rule'': the voluntary termination of a contract. To continue the car analogy, if someone enters into a hire purchase agreement to buy a car—having had such an agreement, I declare an interest—the law states that they may hand the car back at any time and be liable for only half of the due payments; that applies to the capital and the interest. I think that I have correctly understood the law. 
On the face of it, that is beneficial to consumers who have a car and can hand it back as long as it is in a reasonable condition. The definition of ''reasonable condition'' can be problematic, but that is not the point I am making. The Finance and Leasing Association and other groups, such as motor manufacturers, financiers and rental companies, support my amendment. It may appear that handing the car back after three months, six months or halfway through the term benefits the consumer, but there is a problem. If that is costing the hire purchase companies a lot of money—I am advised that it is—somebody somewhere is paying for that. The hire purchase companies—I mean no disrespect to them—will not foot the bill themselves. If I hand a car back, somebody else will have to pay for it through slightly higher interest rates; indeed, I may have done so myself. Somebody somewhere has to pay. 
The Finance and Leasing Association advises that between 80 and 90 per cent. of cars are handed back not because people have got into financial difficulties, but because that is the option available to them under those contracts. As a consumer, I have declared that interest, and I may indeed take advantage of the situation. Given that it is legal, there is no reason why people should not do so. However, that distorts the market and transfers to other people the responsibility of paying a fair price for the credit. Above all, it is a distortion of contract law. 
It is neither a satisfactory way of doing business, nor is it beneficial to consumers or hire purchase companies. It is an area of the law that needs looking into, and, if I am correct, it emanates from the 1974 Act, which is 30 years out of date. I ask for the Minister's thoughts on the amendment and on the situation that I described. The Department has looked into the matter, so he may surprise the Committee and amaze me by accepting an amendment to the Bill for the first time, but I shall not hold my breath.

Gerry Sutcliffe: The hon. Gentleman is right; I shall not be able to satisfy him, despite his valiant efforts and despite the many amendments that have been  tabled even at this late stage. However, he is right to raise the matter, which was principally highlighted by the motor finance sector. It feels that financially savvy customers exploit the provisions by walking away from car finance agreements. One half of the amount has been repaid when such customers become aware that the remaining repayments exceed the residual value of the vehicle. Therefore, in handing the car back, they leave the finance company holding the loss.
The industry's views about the provisions are well known to the Government. That is why, at the end of last year, we consulted on its future. We hope to publish that consultation shortly. Hon. Members and the hon. Gentleman might not be surprised to learn that the responses vary greatly, depending on who gave them. 
Whereas the lenders and the motoring industry fear the abolition of the provisions, groups that represent consumers and enforcers were equally adamant that those provisions should be retained. Having assessed the responses, we have concluded that section 100 and the right voluntarily to terminate should be retained. There are three main reasons why we have concluded that. The first is the lack of consensus, which I outlined. Views were polarised, and in such circumstances it would be difficult to justify the change. 
The second reason is the compelling argument that we would need to remove an existing element of consumer protection. The right voluntarily to terminate is an essential provision of the hire purchase provisions—it is the consumer's key safeguard. Given that we cannot remove that right without calling the whole concept of HP into question, we do not believe that that argument has been made. Thirdly, the industry's economic evidence that it produced to support its claimed losses is open to interpretation. 
The job of industry is to lobby hard, but we wonder whether changes in, for example, marketing practice and product design, which require large deposits, might alleviate the problem. We carefully considered the amendments—that is why we consulted—but on balance the responses to the consultation did not make an arguable case for repeal. In those circumstances, we believe that we should not remove those forms of consumer protection, and in the light of that explanation I hope that the hon. Gentleman will withdraw the motion and the new clause.

Laurence Robertson: The Minister has proved that he is an extremely good goalkeeper. He is also, to use the technical term in football, a very good sweeper: nothing has got past him.
He said that section 100 is about retaining consumer protection, which I do not wish to undermine. However, perhaps consumers are paying more for credit than they should be because of it. It is a matter of weighing up and interpreting the evidence, and of striking the right balance. The Department has already looked at section 100, but it may need to reanalyse the situation, as it could become a problem, because more and more cars are being sold—although the section  does not apply only to cars. This rather strange area of law should be examined. The market was very different when the 1974 Act was introduced, and because of that—if for no other reason—section 100 should be looked at again in more detail. However, I beg to ask leave to withdraw the motion. 
Motion and clause, by leave, withdrawn.

New Clause 5 - Regulatory impact

'(1) The Office of Fair Trading (OFT) will report to the Secretary of State and to Parliament annually on the impact of its monitoring of businesses being carried on under licences and its determinations to issue, renew or vary a licence under the provisions of this Act. 
 (2) The Secretary of State will after a period of no more than five years, consult on and publish an assessment of the impact the Act has had in terms of regulatory burden and harmonisation with European Directives.'. 
—[Malcolm Bruce.] 
Brought up, and read the First time.

Joe Benton: With this it will be convenient to consider new clause 6—
Office of Fair Trading: further duties— 
 '(1) The Office of Fair Trading (OFT) shall consult other financial agencies and produce a standard requirement for the presentation of interest rates to enable direct comparison between products. 
 (2) The OFT shall periodically, and at least annually, publish the range of interest rates on the market for specified products. 
 (3) The OFT shall further publish court rulings and advice of the ombudsman on levels of interest rates for particular products which are likely to be deemed unfair under section 19.'.

Malcolm Bruce: Something like new clause 5 should perhaps appear in a Bill, but it is particularly important in the Consumer Credit Bill.
The Minister acknowledged on Second Reading that the Bill is setting up a mechanism, the full impact of which will not be accessible until it has been in operation for some time. New clause 5 would require the OFT to give an annual report of how it is proceeding and what impact the interpretation of the regulation is having. After five years, the Secretary of State should review not only the impact of the Act and all the regulations and activities applied by the Bill, but any European legislation that is likely to have been enacted in that period. That is in no way to undermine the Bill—quite the opposite—but to ensure that it does not lead to a layering of additional regulations and bureaucratic detail on the industry that gets in the way of the Bill's principal function. That is a matter of genuine concern. 
When one talks to businesses—in this case, financial services businesses and banking businesses—they tend to be able to argue that any individual Act or regulation is probably justified and acceptable, but the cumulative effect can be substantial. That puts the onus on the Office of Fair Trading and on the Secretary of State. It does not give the industry an opportunity to set its own parameters, but it does give an undertaking that it will be reviewed, reported on annually and, over five years, it would require the  Secretary of State to say that he has examined the whole impact and tried to ensure that it has been done as lightly as possible.

Alistair Burt: The hon. Gentleman knows the Government very well if he is concerned that one piece of legislation would lead to a raft of regulations in its wake. While the hon. Gentleman is making his remarks, will he ask the Minister, in his response, to offer an opinion on the general issue of whether sunset clauses that are added to Bills and regulations, which is our policy, would also make a significant difference to the way in which regulation would be accepted by industry and business, which is now literally groaning under the effect of regulations he has described?

Malcolm Bruce: I am content to be associated with the idea of sunset clauses, which my colleagues and I strongly support. However, I want the Minister to focus specifically on the new clause. He and the House have acknowledged that these provisions set up new arrangements, the workings of which will only become apparent over time. I ask for a clear recognition of the need for a review to ensure that the provisions do not create unnecessary bureaucracy, duplication or overlapping that make the delivery of desirable benefits, either to the consumer or to service providers excessively costly. It is a simple clause, and I hope the Minister will accept it.
New clause 6 deals specifically with hon. Members' concerns about potentially high or extortionate rates of interest. The Minister, the Conservatives and I did not agree with the inclusion of a specific maximum interest rate in the Bill. Several hon. Members, particularly Labour Members, wished to see that. 
The new clause states that there should be a standard mechanism for setting out interest rates for different products, because credit card interest rates operate in several different ways. Overdraft interest and hire purchase interest are expressed in different ways. The first thing we must do is ensure standard ways of expressing interest rates appropriate to different products, which can be compared so that consumers can see the full range of credit costs. The OFT should produce—at least annually; certainly periodically—a list of interest rate ranges, which will change as interest rates vary. 
Subsection (3) of the proposed new clause addresses the concerns of hon. Members who wish to identify and eliminate extortionate interest rates. On the basis of experience and practice, it is for the ombudsman and the OFT to say, ''This is the range of products. This is the upper and lower rate of interest for those different products, and on the basis of ombudsman's rulings or court cases, we will indicate from time to time the level of interest rate that is likely to be deemed unfair.'' That would warn credit providers that if they charge above that rate, they are likely to lose a reference to the ombudsman or to the courts. 
The new clause does not insert a specific interest rate into the Bill; it allows that to vary and it leaves it to the discretion of the ombudsman and the OFT. This is a  genuine attempt to address people's concerns, consistent with the agreement of all Front Benchers that putting a specific interest rate in the Bill would be, for a variety of reasons, possibly counter-productive and difficult to enforce. 
 I commend both of the new clauses to the Committee. They genuinely meet the concerns of the industry in the spirit and the letter of the law. They also meet concerns on consumer regulation, particularly for those people at the lower end of the market who often face very high interest rates. A mechanism can be built into the Bill that would effectively allow the authorities to identify, at any given time, interest rates that could give rise to a ruling that they are unfair.

Gerry Sutcliffe: I am grateful to the hon. Gentleman for addressing the two clauses in a sincere manner. We do not need new clause 5 because what it aims to achieve is already in place. The OFT publishes an annual report; it is under an obligation to do so under the Enterprise Act 2002. Section 4 of that Act says that the annual report shall include
''an assessment of the extent to which the OFT's main objectives and priorities for the year . . . have been met''. 
That annual report states progress against the objectives of the annual plan. The first chapter of the 2003-04 report is entitled ''Enforcing consumer protection legislation''. It lists the number of checks on licence application renewals, the number of investigations into fitness, and the number of licences revoked, refused or granted under different terms. It also reports the work done on guidance communication of information, input to policy, and other cross-cutting work. 
It was suggested that the Secretary of State should review the impact of the Act. A regulatory impact assessment has already committed us to review the success of the changes two years after the commencement of the Act. That review will examine whether the number of complaints from consumers has fallen and whether complaints are handled better. It will also examine the costs and benefits of the changes and the effectiveness of regulators. It will also consider the costs and benefits of the changes and the effectiveness of regulators. We said that those would be reviewed alongside other recent changes to the secondary legislation on consumer credit. If a new consumer credit directive is issued by the time of the review, we will also take that into account. Hon. Members will be aware that progress on the directive has been extremely slow, and we do not believe that UK consumers should be made to wait for a directive that may never materialise. I hope that reassures the hon. Gentleman on new clause 5. 
New clause 6 concerns the provision of information on interest rates, but it does not support a provision of clear information for consumers. Better informed consumers can make better choices and encourage competition. We had a great debate on Tuesday about the unfairness test, which captured many of the issues that the hon. Gentleman raised. However, we cannot support new clause 6. 
The two new clauses proposed by the hon. Member require a presentation of interest rates to allow comparison. All hon. Members will be aware of discussions held by the Treasury Committee. Extensive consultation, both here and externally with industry consumer groups and regulators, has informed the Government's position on interest rates. Therefore, I hope that the hon. Gentleman, in the spirit with which he talked about the unfairness test, will realise that the Committee will deal with the issues that he has raised. The redress mechanisms through the OFT and the FOS mean that he will not have to examine the extra cost that the burden of his new clause will bring. I hope that hon. Gentleman will accept the spirit of what we are trying to achieve, and ask him to withdraw the motion.

Malcolm Bruce: I appreciate the Minister's reply, and I hope he understands that there are issues that could usefully be further debated. In the hope that we will be able to return to those issues on Report, I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn. 
Question proposed, That the Chairman do now report the Bill, as amended, to the House.

Gerry Sutcliffe: This is an important Bill, and I am pleased with the way in which the Committee has handled it. We have teased out the issues that needed to be addressed.

Laurence Robertson: I, too, thank Mr. Benton and Sir John Butterfill who chaired the deliberations on Tuesday. I also thank my Colleagues and all hon. Members who have contributed to the spirit and detail of the discussion of the Bill. I thank the Minister for being very accommodating not just today, but during the entire consideration of the Bill. I look forward to further discussions with him about issues that have, to some extent, been left unresolved. It is unfortunate that we did not manage to get a goal past him.
I am reminded of an interview that Enoch Powell once did on Europe. The interviewer asked him: ''Mr. Powell, haven't you failed?'' He replied, ''Maybe failed, but I wasn't wrong.''

Malcolm Bruce: I want to echo those sentiments. The Committee has proceeded with remarkable speed and efficiency. I acknowledge the contribution of my hon. Friend the Member for Richmond Park, who stood in for me on Tuesday. As she will admit, I think, this is not her star subject, but she did extremely well on our behalf. I am glad that I have been able to take part today.
This is an important Bill, which will have an impact. All Committee members can feel that they have each made a useful contribution to a piece of legislation that will help our constituents.

Joe Benton: On behalf of Sir John and myself, I thank the Committee members for the courtesy that they have extended. I will ensure that those kind remarks are passed on to Sir John. I also thank the learned Clerk and the support services.
Question put and agreed to. 
Bill, as amended, to be reported. 
Committee rose at Five o'clock.